In their final report of their 8-year study of how corporations address sustainability, MIT Sloan Management Review and The Boston Consulting Group examined the crossroads at which sustainability finds itself in 2017. At this time, despite sociopolitical upheaval that threatens to reverse key gains, their research showed that companies can develop workable — and profitable — sustainability strategies to reduce their impact on the global environment by incorporating 8 key lessons.
Despite significant progress, corporate sustainability has arrived at a crossroads. In one direction, corporate leaders in sustainability remain a minority, and are unevenly distributed across geographies and industries. In the other direction, a handful of standout companies are demonstrating that sustainability can be a driver of innovation, efficiency, and lasting business value. Populist political movements around the world threaten to set back global diplomatic progress on issues like climate change and reverse recent regulatory trends. All of this complicates the calculus of corporate leaders and their sustainability strategies.
Key Lesson #1: Set your sustainability vision and ambition: 90% of executives see sustainability as important, but only 60% of companies have a sustainability strategy.
Key Lesson #2: Focus on material issues: Companies that focus on material issues report up to 50% added profit from sustainability. Those that don’t focus on their material issues struggle to add value from their sustainability activities. “Strategies” that focus on biking programs, recycling drives, or a CEO’s pet philanthropy have little impact on the business and the larger sustainability issues that matter most. These are not strategies for making the business sustainable over time. “If you’re a bank and you’ve got an energy-savings program and you’re in LEED platinum buildings, investors aren’t going to care,” says Arabesque’s Eccles. “But if the bank’s loan portfolio has a bunch of ESG risk and stranded assets … those are things that are material.” Another example is Patagonia Inc., a company that connects its sustainability strategy with material business issues. As a leading textile manufacturer and retailer, Patagonia recycles plastic waste into its innovative fabrics and, with its Worn Wear motto, “Better than new,” encourages its customers to mend and repair Patagonia clothing rather than throwing it out and buying new.28 From 2008 to 2015, Patagonia had a compound annual growth in revenues of 14%, while profits surged 300% during this period. It also contributes 1% of annual revenues to nonprofit organizations that promote conservation of the natural environment their outdoor customers love.
Key Lesson #3: Set up the right organization to achieve your ambition: Building sustainability into business units doubles an organization’s chance of profiting from its sustainability activities.
Key Lesson #4: Explore business model innovation opportunities: Nearly 50% of companies have changed their business models as a result of sustainability opportunities.
Key Lesson #5: Develop a clear business case for sustainability: While 60% of companies have a sustainability strategy, only 25% have developed a clear business case for their sustainability efforts.
Key Lesson #6: Get the board of directors on board: 86% of respondents agreed that boards should play a strong role in their company’s sustainability efforts, but only 48% say their CEOs are engaged, and fewer (30%) agreed that their sustainability efforts had strong board-level oversight.
Key Lesson #7: Develop a compelling sustainability value-creation story for investors: 75% of executives in investment companies think sustainability performance should be considered in investment decisions, but only 60% of corporate executives think investors care about sustainability performance.
Key Lesson #8: Collaborate with a variety of stakeholders to drive strategic change: 90% of executives believe collaboration is essential to sustainability success, but only 47% say their companies collaborate strategically.